Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/80128
Authors: 
Aumann, Robert J.
Serrano, Roberto
Year of Publication: 
2006
Series/Report no.: 
Working Paper, Brown University, Department of Economics 2006-20
Abstract: 
Define the riskiness of a gamble as the reciprocal of the absolute risk aversion (ARA) of an individual with constant ARA who is indifferent between taking and not taking that gamble. We characterize this index by axioms, chief among them a “duality” axiom which, roughly speaking, asserts that less risk-averse individuals accept riskier gambles. The index is homogeneous of degree 1, monotonic with respect to first and second order stochastic dominance, and for gambles with normal distributions, is half of variance/mean. Examples are calculated, additional properties derived, and the index is compared with others in the literature.
Subjects: 
riskiness
risk aversion
expected utility
decision making under uncertainty
portfolio choice
Sharpe ratio
variance-mean ratio
value at risk
JEL: 
C00
C43
D00
D80
D81
E44
G00
Document Type: 
Working Paper

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